November 14, 2018 / 7:40 AM / a month ago

UPDATE 2-British airline Flybe soars on talks with potential buyers

* Airlines looking to consolidate amid rising costs

* Shares jump as much as 44 percent

* Plans to cut capacity for H2 by about 3 pct

* Posts 49 pct rise in H1 adj pretax profit (Adds details on outlook, shares, background on industry consolidation)

By Arathy S Nair

Nov 14 (Reuters) - British regional airline Flybe Group Plc said on Wednesday it was in talks with potential buyers, as it grapples with higher fuel costs, lower demand and a weak British pound, sending its shares up as much as 44 percent in early trading.

Airlines have been looking to consolidate in many markets as a result of rising running costs, largely higher fuel prices, and increased competition from budget carriers. Icelandair agreed to buy rival WOW air last week.

Flybe’s stock plunged after a profit warning last month, underscoring challenges that are also affecting bigger European rivals including Ryanair Holdings Plc Wizz Air Holdings Plc and easyJet Plc.

Flybe, which has 78 aircraft in its fleet, said it was in talks with a number of potential buyers, without giving details.

Shares in the company, which also posted a jump in first-half profit as cost cutting measures started to pay off, were up 30 percent at 15.175 pence at 0815 GMT, valuing the business at around 33 million pounds ($43 million).

While there has been some consolidation in Europe over the last year, with Lufthansa and easyJet acquiring parts of failed Air Berlin in 2017, the CEOs of the continent’s biggest airlines say more is to come, particularly if oil prices remain high.

But Flybe said it was also looking at other options, such as further reductions in capacity and costs.

The company said it planned to cut capacity by around 3 percent in the second half of its financial year.

It has already reduced its fleet size, focused on profitable routes and cut costs as it pushes ahead with investments in a new digital platform. It has been hedging fuel costs and foreign exchange risks too.

Flybe said it was also exploring a possible move to a standard London Stock Exchange listing, from its current premium listing, saying that would give more flexibility on divestments.

British infrastructure and support services company Stobart Group scrapped plans to buy Flybe in March after being rebuffed.

Flybe reported a 49 percent rise in adjusted profit before tax for the six months ended Sept. 30.

Forward sales rose in the third quarter, with 63 percent of seats sold, versus 59 percent a year earlier. Seat capacity fell 6 percent, while passenger revenue per seat rose 2 percent.

Flybe said it was developing Brexit contingency plans, including potentially reassigning contracts that could be directly affected.

$1 = 0.7707 pounds Reporting by Arathy S Nair and Tanishaa Nadkar in Bengaluru; Editing by Saumyadeb Chakrabarty and Mark Potter

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